UK Investors Hold Significantly More Wealth Than Cash Savers, Research Finds

New research indicates that individuals who invest their money possess considerably more wealth than those who solely rely on cash savings, with the disparity evident even for people earning modest incomes. The study by wealth management firm St. James's Place highlights that investors can hold up to four times more wealth than non-investors within the same income bracket.

For households earning up to £20,000 annually, investors have an average wealth of £103,025, compared to £24,559 for those who only save cash. This gap narrows but persists across higher income levels. For example, individuals earning between £20,001 and £40,000 per year who invest hold an average of £133,168, more than three times the £40,991 held by cash savers in the same earning bracket. For those earning over £80,000, investors possess an average of £528,118, significantly more than the £174,692 held by non-investors.

These figures for wealth encompass savings, investments, and physical possessions, excluding pensions. The research suggests that this wealth accumulation for investors might be influenced by several factors. Some individuals may have modest salaries but substantial wealth from business ownership or substantial savings and investments built up over time, potentially including those who are retired. Furthermore, over two-thirds of individuals who have been investing for more than five years report feeling financially comfortable, a sentiment shared by only 26% of non-investors.

Despite the clear long-term advantages of investing, a significant portion of wealth remains in cash. The average British adult holds nearly two-thirds of their savings and investments in cash, rather than stocks and shares. Even wealthier households maintain substantial amounts in cash, with those holding between £500,000 and £999,000 in investable assets keeping an average of £197,860 in cash, representing 36% of their total assets.

While cash savings offer a sense of security and accessibility, their value can be diminished by inflation, especially if interest rates do not keep pace. With inflation at 2.8% in May, interest rates on cash accounts need to exceed this to maintain purchasing power. Currently, the best easy-access savings accounts offer up to 5% interest.

Experts recommend maintaining an emergency fund in an accessible savings account, typically covering three to six months of living expenses. However, they caution against over-reliance on cash for long-term wealth accumulation. Alexandra Loydon, group advice director at St. James's Place, stated, 'There is a risk of becoming cash rich but future poor if people remain over-exposed to cash over the long term.'

It is important to note that investment returns are not guaranteed and the value of investments can fall. Financial advice typically suggests investing only money that will not be needed within the next five years.